Greece heading for snap elections

The day’s events as former European commissioner Stavros Dimas fails to secure 180 votes required to be elected president, triggering snap general election that could put Greek bailout at risk

Updated

A Greek presidential guard performs a ceremonial march at the monument of the unknown soldier in front of the parliament building in Athens on Saturday. Kostas Tsironis/AP
Photograph: Kostas Tsironis/AP

European markets recover after Greek-inspired falls

There was an immediate knee-jerk reaction to the news that Greek prime minister Antonis Samaras had failed to muster enough support to win the third and final presidential vote, with markets falling back and Greek bond yields soaring. The outcome of a snap election is causing much uncertainty about the outlook for the country’s political status and the prospects for its bailout agreement. Syriza, the party in the lead in the polls, wants to renegotiate the bailout terms, while the likes of Germany are warning Greece to stick to its agreements.

Syriza’s Alexis Tsipras. Photo: Reuters/Alkis Konstantinidis

But a growing feeling that Greece’s situation, while serious, may not have an immediate knock on effect on the rest of the eurozone, helped markets recover lost ground. The most affected were the Athens market - despite recovering from its worst levels - and Spain and Italy, on fears they were the likeliest to be hit by any contagion. The final scores showed:

The FTSE 100 finished 23.58 points or 0.36% higher at 6633.51

Germany’s Dax edged up 0.05% to 9927.13

France’s Cac closed 0.51% better at 4317.93

Italy’s FTSE MIB fell 1.15% to 19,130.02

Spain’s Ibex ended down 0.84% to 10,394.2

The Athens market dropped 3.91% to 819.81

On Wall Street the Dow Jones Industrial Average is currently almost unchanged, down just 4.5 points or 0.02%.

On that note it’s time to close up for the evening. Thanks for all your comments, and we’ll be back tomorrow.

The revision of the banks’ outlooks to negative reflects Fitch’s expectation that economic recession, significantly increased funding costs, sharp rouble depreciation, closed wholesale funding markets, a challenging liquidity situation and rising inflation will weigh on the banks’ credit profiles. At the same time, the affirmation of the banks’ ratings reflects (i) their moderate resilience to the weaker operating environment, as financial metrics are for the most part currently reasonable; and (ii) sovereign support for the sector, in the form of regulatory forbearance, liquidity provision and potential capital injections, which should reduce near-term pressures.

German finance minister Wolfgang Schaeuble has warned Greece to stick to its economic reforms, and said any new government would be held to the agreements made by Antonis Samaras’s current administration. Reuters reports:

“The tough reforms are bearing fruit and there is no alternative to them,” Schaeuble said after Greek lawmakers triggered an early election by failing to a elect a new president in a decisive third round of voting in parliament.

“We will continue to help Greece help itself on its path of reform. If Greece takes another path, it will be difficult,” Schaeuble added. “New elections will not change the agreements we have struck with the Greek government. Any new government will have to stick to the agreements made by its predecessor.”

Samaras said after the vote in parliament on Monday that he would propose January 25 as the date for a general election. Polls suggest that left-wing Syriza, which rejects the terms of Greece’s euro zone bailouts, will emerge as the strongest party in the election.

Back with Greece. and the International Monetary Fund, one of the counry’s troika of lenders, has said talks on the next review would take place one the new government was formed, and that Greece had no immediate financing worries. IMF spokesman Gerry Rice said:

Discussions with the Greek authorities on the completion of the 6th review of the program that is being supported by an Extended Arrangement will resume once a new government is in place, in consultation with the European Commission and the European Central Bank. Greece faces no immediate financing needs.

People arrived in more of a trickle than a flood when CityLink opened its gates for the first time since the company announced its collapse on Christmas Eve. An orderly queue of up to four people formed at the front desk, with customers reporting waiting times of between 15 minutes and an hour an a half. Any sign of staff tumult appeared to have long since subsided. “There were people here two weeks ago screaming that they wanted to get paid,” said one volunteer at a homeless charity based across the road from the depot. “But since then the gates have been locked. I haven’t heard of anything unpleasant going on.”

Many of those who turned up to collect parcels heard about the company’s misfortune on the television news, but some remained oblivious. “Has it really? Oh, I didn’t know that!” said Minguyan Li, 24, when told CityLink had gone bust. “Their service is not so good for me. They announced their opening times but they don’t follow them. This is the third time I’ve been here to collect my parcel.”

Greece is heading for snap elections, after Stavros Dimas failed to win enough votes to become president.

Prime minister Antonis Samaras had a mandate until mid 2016 for his coalition government, but had promised to bring forward the poll if Dimas, the only candidate, did not win the largely ceremonial post.

Dimas won 168 votes in a third and final round of voting - 12 votes short of the super majority he needed.

The election is likely to be held on 25 January and could plunge Greece into political chaos, as leading opposition party Syriza has vowed to re-negotiate the country’s eurozone bailout.

Two years ago I sat in the HQ of Syriza waiting for a very close election result. “Thank god, we’ve lost. That’s great for us,” said one of the party’s journalists as they greeted me. You could see why: they were not prepared for power - the entire party records were in six or seven box files on the shelf next to me.

But in the past two years Syriza has professionalised, mounted a fairly consistently slick performance as the official parliamentary opposition, and moderated its demands. Instead of cancelling the debts to the EU and IMF, it wants to negotiate half of them away. It is pledged to something George Osborne will only achieve in 2018 - a balanced budget.

So even as the symbolism of moderate Marxism is plastered all over Syriza, in reality its programme for Greece is mainstream Keynesian economics.

Greeks are already starting to get advice in the wake of the election call, including from the European Commission’s Pierre Moscovici who said (according to Reuters snaps) that it was essential for Greek leaders and voters to support growth friendly reforms for Greece to thrive again.

Think tank Open Europe has been looking at the implications of the forthcoming Greek election, and the uncertainty it has caused.

For a start, there will be questions about whether Greece can meet the conditions of its recent bailout extension. Open Europe says:

The deal allowed the country an extra two months to complete some further reforms and for the EU/IMF/ECB Troika to complete its current bailout review. However, the first two weeks of this period have been spent on the presidential vote – little time has been spent taking action. Now the parliament is to be dissolved, meaning that nothing can happen for at least a month or six weeks – and certainly no new legislation can be passed. Some work will continue behind the scenes, but with the political establishment in full election mode, minds will be elsewhere. Furthermore, the landscape could fundamentally change after the elections, providing an excuse to delay any radical reforms.

After the election, the new parliament will still have to elect a president, which could again prove tricky depending on how stable the government is.

It will then have to negotiate an exit from the bailout and fill Greece’s funding gap of several billions over the next few years:

The window to work in here is small meaning the pressure will be on, reducing the room for manoeuvre. With the bailout finishing at the end of February the new government will have little time to secure a deal or face cash shortages in the following months. The negotiations over the future role of the IMF will be particularly fraught, with many in Greece keen to see them leave but with eurozone partners wanting the funds involvement to continue. Fundamentally, Greece and the Eurozone will have to face up to the question of debt restructuring for the first time in two years – an issue many incorrectly thought had been put to bed.

Open Europe also assesses the risks to the eurozone:

It has once again been clear from this episode that financial market jitters in Greece are now largely contained, there has been little to no spill over into other Eurozone countries.

That said, what happens in Greece could have important implications. If SYRIZA come to power, many could see it as a dry run for what might happen in the Spanish elections due at the end of 2015, in which [anti-austerily party] Podemos are expected to make huge gains and possibly be the largest party. Similarly, SYRIZA are seen by many as the template which a number of populist/anti-austerity parties are trying to follow. This is driven home by the fact that Pablo Iglesias, the leader of... Podemos, tweeted the following earlier today, “2015 will be the year of change in Spain and Europe. We will start from Greece. Come on, Alexis! Come on, SYRIZA!”.

The negotiations over Greece’s debt will also be seen a precedent. Any deal or restructuring offered to Greece may have to be offered to other countries, particularly those who took bailouts and have very high debt levels (both Ireland and Portugal qualify). The conditionality will also be scrutinised, particularly at a time when France and Italy are pushing back against the strict reform and fiscal consolidation criteria. Any additional room given to Greece will be noted and demanded by other eurozone states. As has often been the case, Greece may once again become a testing ground for the next round of Eurozone crisis policies.

Alastair McCaig, market analyst at IG, thinks the Greek vote will intensify the European debate over austerity.

Although this [vote] is a specific issue for Greece it will raise fresh fears over the fate of the eurozone and the timelines for the possible implementation of a European version of QE. 2015 could see an escalation in the debate over austerity, with the same old north-south divide on what is proportional still raging.

Greece’s main stock market, the Athex General Composite Share Price Index, is *only* down 7.2% at the moment.

The ATG has clawed back some of its losses, having fallen almost 8% before the vote took place. It seems investors had already decided the government would fail to win the vote: the Greek stock market has lost one third of its value in 2014.